Token Sale Tax Planning

Token sale tax planning is the work of establishing what your basis and holding period already are, because for a founder both were fixed at acquisition. The sale only reveals the number. My view is that the grant agreement and the vest date do most of the damage, and most founders read them carefully for the first time in the week they want liquidity.

Part of our guide: Crypto Taxes.

The short version

• A founder or team allocation usually carries no purchase price, so basis comes from whatever was included in income, and a tranche that never passed through income starts at zero.
• Section 83 reaches property transferred in connection with services, and its election must be made no later than 30 days after the transfer.
• A promise to deliver tokens later is not property under Treas. Reg. § 1.83-3(e), so there is nothing to elect against.
• The holding period begins the day after receipt, on a date the release schedule chose years ago.
• Which address the units settle from is a basis decision by itself, since identification operates inside one wallet or account.

Basis comes from acquisition, and founders acquire differently

The general rule is short: “The basis of property is its cost. Generally, the basis of a digital asset is the cost in U.S. dollars” (IRS, Digital assets). A bought position resolves cleanly, since a purchase leaves a wire, a price, and a counterparty.

A founder allocation has none of those. Units are issued for building the protocol, and the dollars paid are zero or nominal. Basis then comes from the only other place available, the amount taken into income on receipt: “your basis in that virtual currency is the fair market value of the virtual currency, in U.S. dollars, when the virtual currency is received” (IRS, virtual currency FAQs, Q13).

The founder’s basis question is therefore an income question, answered on a return filed in an earlier year, sometimes by a preparer who never saw the token agreement. In my experience two errors cost about the same: assuming zero basis on units already taxed once, and claiming a basis no return supports.

Vesting fixes a number nobody chose

Where property is transferred in connection with the performance of services, section 83 governs timing. Under Treas. Reg. § 1.83-3(b) property is substantially nonvested while it stays subject to a substantial risk of forfeiture and nontransferable, and the default is income when that condition lapses, at the value on that day. The recipient picks neither the date nor the value: the vesting calendar does.

The alternative is an election with a hard deadline.

“An election under paragraph (1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer.”

26 U.S.C. § 83(b)(2), Cornell LII

Thirty days runs from the transfer, which for most allocations means the grant date and precedes any release, so the window often closes before a founder treats tokens as a tax matter. The IRS publishes Form 15620, Section 83(b) Election, and an election once made cannot be revoked without IRS consent.

Whether any of it applies turns on a threshold most grant paperwork never addresses. Treas. Reg. § 1.83-3(e) defines property here as real and personal property other than money or an unfunded and unsecured promise to pay money or property in the future. A token warrant or restricted token unit promising future delivery sits outside that, so no election exists and the income arrives when the units do.

Everything then turns on when receipt happened. The clearest published IRS statement covers staking, holding that value enters gross income “in the taxable year in which the taxpayer gains dominion and control over the validation rewards” (IRS, Rev. Rul. 2023-14). That does not decide a token grant, and I am not aware of guidance applying section 83 to them, but it shows the test: when could the holder dispose of the units. For a locked allocation the contract answers that. The amount included at vest becomes basis, and the holding period that decides long-term treatment starts the day after receipt.

The address the sale settles from

Founders hold more addresses than investors: a vesting contract, a team multisig, a personal wallet, a custodian account, and an operating company treasury. Basis has been tracked at the wallet or account level since 1 January 2025 under Rev. Proc. 2024-28, so where a sale settles from selects the lots available to identify. Notice 2026-20 extends identification relief through 31 December 2026 only for units in broker custody, and a vesting contract is not a broker. Moving units moves the clock too: under 26 U.S.C. § 1223(2) holding period tacks where the recipient takes the same basis, so a transfer into a trust or an entity carries both along.

What I actually see

The zero-basis assumption. A founder tells me the tokens cost nothing, so everything is gain. Then a vested tranche turns up reported as compensation on a return from two years back. That amount is basis, and it went missing because the information return and the wallet record were never compared.

The election that exists as a decision and never as a filing. Counsel and founder discuss an 83(b) election, agree it makes sense, and the envelope never goes out. Or it goes out on day forty. Or it is filed against a token warrant, which conveys a right the regulation does not treat as property, so it attaches to nothing.

The unlock read as a market event. Units release, income is fixed at that date’s value, and the tokens stay restricted by contract or liquidity. The obligation does not wait for a sale: “Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments” (IRS, Estimated taxes).

Here is the check I would run. Take the largest tranche already released to you and write four things: the transfer date in the grant instrument, the date the units were released, the date they reached an address whose keys you control, and the tax year any dollar amount for that tranche appeared on a filed return. For most founder allocations the first three differ. One started the thirty-day election window, one is the income date, one starts the holding period, and only the documents say which. If the fourth is blank for a tranche you already hold, you have either a zero basis you can prove or an income event nobody reported, and that difference decides the result on that tranche.

Where this goes wrong

The damage almost always traces to paperwork that settled a tax result while everyone in the room was thinking about governance.

The failures worth naming: a grant instrument drafted by corporate counsel and never read by a tax adviser, so the property question was never asked. An 83(b) election delivered to the company and never mailed to the IRS, which leaves no election. A pre-launch grant valuation with no contemporaneous memo behind it. A transfer into a family trust made in the same year as a vest, with the carryover basis and tacked holding period recorded nowhere. And the unrecoverable one: a vest in a closed year, reported by no one, sitting underneath every later calculation.

The decision rule

1. Read the grant instrument first, and settle whether it transferred property or promised future delivery.
2. Fix the transfer date from the document, since the thirty-day window under section 83(b)(2) runs from that date.
3. Locate every 83(b) election actually filed, with mailing evidence, and treat an unfiled decision as no election.
4. Reconstruct the income already reported per tranche, by year and by form, because that amount is your basis.
5. Date each tranche’s holding period from receipt, remembering it begins the day after.
6. Map every tranche to the wallet, account, or entity that received it, since identification operates inside one of them.
7. Size the tax on income already recognized, since it is owed during the year the units released.
8. Put the grant documents, filed returns, and wallet history in front of one CPA and one attorney together.

Where this sits

This question rests on structures covered elsewhere. Custody decides which identification rules reach you, trusts and Wyoming LLCs decide whose books the tranches live in, and estate planning decides what happens to a basis set at vest. The founder questions next door cover planning ahead of an unlock, reviewing the lock-up agreement, and sequencing a liquidity event.

Three professions touch a founder allocation and none of them owns the whole of it. Corporate counsel drafts the grant and vesting schedule and treats both as governance instruments. The CPA meets the tokens as a line on an information return, without sight of the agreement behind it. The custodian sees units arrive and knows nothing about why. Each is competent inside a boundary, and the three facts that settle the outcome, the transfer date, the income date, and the receiving address, sit in three files nobody has been asked to assemble.

Sources

• IRS, Digital assets
• 26 U.S.C. § 83, property transferred for services (Cornell LII)
• 26 CFR § 1.83-3, property and substantially nonvested defined (Cornell LII)
• IRS, Form 15620, Section 83(b) Election
• IRS, Rev. Rul. 2023-14, dominion and control
• 26 U.S.C. § 1223, holding period of property (Cornell LII)
• IRS, Frequently asked questions on virtual currency transactions

Related

• How should a founder plan before a token unlock?
• Token liquidity event planning
• Can founder tokens be transferred to a trust?
• How do founders diversify token wealth?
• Common crypto tax record mistakes
• Founder and token holder wealth

Last updated: 3 August 2026. The broker-custody identification relief referenced here ends on 31 December 2026.

This article is general education, not legal, tax, or investment advice. How a token allocation is taxed depends on the grant documents, whether an election was made and when, and what was reported in earlier years. Talk to a qualified CPA or tax attorney about your own situation.